Rally Off November 16 Low Still Intact

Note: The S&P 500 was down 13.5 points on Wednesday morning. It rallied in the afternoon to finish up 10.9 points.

Even with the declines on Wednesday morning, the bulls still have the upper hand. Assuming we did not know what symbols were used to generate the charts below (removes our bias), we can ask ourselves:

“Would I be interested in buying this as an investor (rather than a day trader)?”

Looking at the first chart, the answer is “no, we are not interested in buying”. The chart below has a recent bearish MACD cross. It also experienced a bearish break of the RSI trendline (see green line bottom). The ratio is also below the 10 (blue line), 20 (red line), and 200-day (green line) moving averages, which is indicative of bearish trends. The ratio faces resistance near the intersection of thick blue trendlines.

Looking at chart two, the answer is “no”. The chart below recently broke two CCI trendlines in a bearish manner. Rate of Change (ROC) also dropped below zero (see bottom).

Looking at chart three, the answer is again “no”. The chart below is forming a bearish TRIX cross and has broken a bullish ULT trendline (see bottom).

The charts above are based on the performance of being short the Dow relative to being long the S&P 500. As of the close on Tuesday, and even as of 10:00 AM EST on Wednesday, the charts above have not deteriorated in a manner (yet) that says the odds favor being short over being long in the coming weeks. Can the shorts have the upper hand for a few days? Sure, but until stronger evidence surfaces pointing to a resumption of the recent bearish trends, we will not overreact to the declines this week.